Trading software makes it easy to add an unlimited number of indicators to any chart with just a few clicks of the mouse.
The problem is that most of these indicators are derived from the from same basic data point.
Many of them start with the closing price and then do a little math to create a line which looks like it holds the keys to profits.
Stochastics, MACD, RSI, ADX, and many other ideas compete for chart space, offer conflicting signals, and the truth is none of them will really work consistently.
Markets change over time, so there really isn't any one way that an indicator could keep up with that and deliver winning signals as markets consolidate or trend.
Really, you need to only look at just three simple indicators to help you figure out what the market is doing.
Most important is the idea of support and resistance.
Prices move up when there are more buyers than sellers and they fall when the sell orders outnumber the buy orders.
On a chart, we can sometimes spot levels where prices continually change direction.
This is caused by the actions of large institutional traders like mutual funds.
They may think a stock is a bargain at $40 a share and consider it overvalued at $50.
They'll buy at $40 and sell at $50, and the chart shows a line where prices hit support at $40 (a level that protects against downside risk) and runs into resistance at $50 (the point where the price just can't seem to move any higher).
Smart traders can earn short-term profits by spotting the action of these large traders on stock charts.
Whenever you look at a chart, you can draw lines where the price has found support or hit resistance, and you can place an order to make money from this data.
Fibonacci levels should also be drawn on your chart.
These relationships can be used to spot potential support and resistance levels in the future.
The math is pretty simple once you get the hang of it, and the market respects Fibonacci levels a surprising amount of the time.
Many futures traders use these numbers to scalp the market, and trading with the smart money is important to success in this field.
A moving average should also be used on your chart to identify the direction of the trend.
However, just using one moving average is enough.
Beginning traders often put several averages on the chart, but then they don't know which one is important.
We only want the average to help us spot the trend.
If prices are above the moving average, the trend is up and we should profit on the long side or look for a potential reversal.
When they fall below the moving average, the trend is down and we want to focus on short trades, or reversal trades.
Indicators are necessary to help us know when to buy and sell.
But they need to be simple in order to give us clear signals.
Too many indicators will cause confusion.
Complex indicators will likely fail to work in the long-term.
Support and resistance, Fibonacci levels, and a single moving average will help you trade successfully.